Did AOL Ad Dollars Drop 18 Percent Last Quarter?

Along with a $25 billion write-down, Time Warner announced that operating income would be lower than it had predicted for 2008, in part because of weakness at AOL and Time Inc.

J.P. Morgan’s Imran Khan does some quick math and concludes that what Time Warner (TWX) is really saying is that ad revenue at AOL dropped 18 percent in the last quarter (see below for math). That’s awful, but believable: AOL ad revenue dropped six percent in the previous quarter, and as I noted last fall, those results only included a couple weeks of flat-out economic collapse.

This obviously doesn’t augur well for the rest of the Internet ad business, either. But only the most die-hard optimist thought that the Web was going to survive this thing unscathed anyway.

“We estimate that advertising revenue shortfall at AOL is at least $64M implying an 18.4% Y/Y advertising revenue decline. We make the following assumptions to arrive at this estimate: (1) we assume that half of the 1% shortfall in Y/Y Adjusted OIBDA growth that TWX press release attributes to both Publishing and AOL is due to online ad revenue shortfall; and (2) we assume a 100% incremental margin.”

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